North Carolina Case Law Update
North Carolina Land Title Association
2016 Annual Convention
September 15-17, 2016
By Chris Burti, Vice President and Senior Legal Counsel, Statewide Title, Inc.
(Materials reprinted courtesy of Statewide Title, Inc.)
Contents
North Carolina Case Law Update
Recent Case Developments 2015/2016
NORTH CAROLINA SUPREME COURT
High Point Bank & Trust Co. v Highmark Props., LLC
Availability of G.S. Sec. 45-21.36 Offset Defense to Guarantors
Atlantic Coast Props., Inc. v. Saunders, (365A15) 4/15/2016
Supreme Court sets Proof of Ouster of Tenant in Common
Kirby, et al v NCDOT (56PA14-2) 6/10/16
Transportation Corridor Map Act Triggers Inverse Condemnation
State v. McGrady, (72PA14) 6/10/2016
NC Supreme Court - North Carolina is a Daubert State
NORTH CAROLINA COURT OF APPEALS
Quinn v Quinn (COA 14-979) 10/6/2015
COA – Invalid Acknowledgment Renders Deed “Void”
In re: Rawls (15-248) 10/26/2015
Foreclosure - Original Note Endorsed in Blank
The Residences at Biltmore Condo. (14-1222) 11/4/2015
COA nixes Condo “Declarant Retained Property”
Chen v Zou(15-228) 11/17/2015
Divorce Judgment Voided over Service by Publication
Nies v Town of Emerald Isle (COA15-16) 11/17/2015
Beach above Mean High Water Subject to Public Trust Doctrine
Landover HOA, Inc. v Sanders (14-1337) 12/15/2015
Declarant’s Rights not Transferrable by Dissolved Corp.
In re Foreclosure of Herndon (15-488) 1/19/2016
Subsequent Default Not Subject to Two Dismissal Rule in Ch. 45
B S K Enters., Inc., v Beroth Oil Co. (15-189) 3/1/2016
Adjoiners’ Damages for Groundwater Contamination
In re: Williams (15-619) 3/1/2016
Intestate Succession by Illegitimate Child
Harris v. Gilchrist (15-437) 3/1/2016
Accounting for Betterments, Rents and Profits in Partition
In re: Peacock(15-1238) 6/21/16
Marriage Valid in NC without Marriage License
Myers v. Clodfelter (15-1307) 6/7/16
Prescriptive easement by hostile use, claim of right, sole access
SOUTH CAROLINA COURT of APPEALS
Lyons v. Fidelity National Title Insurance Company
South Carolina COA Construes Enhanced Policy Coverage
Recent Case Developments 2015/2016
NORTH CAROLINA SUPREME COURT
High Point Bank & Trust Co. v Highmark Props., LLC
Availability of G.S. Sec. 45-21.36 Offset Defense to Guarantors
On discretionary review of a unanimous decision of the Court of Appeals, ___ N.C. App. ___, 750 S.E.2d 886 (2013), finding no error in orders of the respective trial courts, the Supreme Court allowed defendants’ conditional petition for discretionary review as to additional issues. The issue of a guarantor’s liability for a foreclosure deficiency was raised again on appeal in less than a year from the prior reported case. In Court of Appeals opinions cited in the Court of Appeals opinion, the Court has made a distinction of finding availability of the defense where the mortgagor was a party to the action, but determining that it was unavailable when not a party.
The borrower was voluntarily dismissed by the plaintiff in this deficiency action and the trial court ordered an offset after the borrower was re-joined in the action pursuant to N.C.G.S. § 26-12(b). The jury found that the value of the property at the time of the foreclosure sale represented the bulk of the debt though the lender’s bid was substantially lees. The plaintiff argued that the defense and offset provided for in N.C.G.S. § 45-21.36 is personal to the borrower, and is not available to the guarantors simply because the borrower had availed itself of the offset defense.
While the Court of Appeals agreed that the plain language of N.C.G.S. Section 26-12(b) does not expand the defenses available to the guarantors beyond those that were available when the action was brought against both simply because of the re-joinder of the borrower, it held that the guarantors “were not allowed an offset defense, Borrower was. The fact that Guarantors “benefitted,” because the amount of Borrower’sindebtedness was determined at trial to be less than what Plaintiff claimed, does not alter this fact.”
The Court parsed the issue in the case as “not whether a guarantor can personally assert an offset defense pursuant to N.C.G.S. § 45–21.36. We have not held that Guarantors had the right to avail themselves of the offset defense in N.C.G.S. § 45-21.36. We quite assiduously avoided making that determination.We hold that Guarantors were only responsible for Borrower’s indebtedness. This holding is in accord with precedent and the language of the guaranty agreements drafted by Plaintiff. Once the jury and the trial court determined Borrower’s indebtedness to Plaintiff, Guarantors’ liability to Plaintiff was thereby established.”
The distinction might seem a bit dubious in light of the opinions citation of Wells Fargo Bank, N.A. v. Arlington Hills of Mint Hill, LLC, N.C. App. __, __, 742 S.E.2d 201, 204 (2013) which held that the offset defense was personal to the borrower even though the borrower had been joined in the action against the guarantor. The majority determined that once Highmark was joined as a party, guarantors were entitled to benefit from Highmark’s use of N.C.G.S. Section
45-21.36. However, the concurring judge reached the same result as the majority by concluding that guarantors could assert the anti-deficiency defense provided by N.C.G.S. Section 45-21.36 even if Highmark was not a party citing the North Carolina Supreme Court Virginia Trust Co. v. Dunlop, 214 N.C. 196, (1938) as ruling that the guarantor of a purchase money deed of trust is entitled to plead the anti-deficiency statute as a defense in an action brought on his personal guaranty. The concurring opinion points out that as the issue before the Supreme Court was the appropriateness of a motion to strike, the right to plead could only entail a right to prevail on the pleading. Also at issue was the appropriateness of the trial judge’s joinder of the borrower, Highmark as a defendant in this action pursuant to N.C.G.S. Section 26-12 and the issue of whether the waiver of defenses in the Guaranty Agreement precluded the guarantors from raising the anti-deficiency defense of the statute.
As the controlling law supports the contention that the offset defense is not personal to the borrower, this Court of Appeals opinion set up the likelihood that the Supreme Court might resolve the question expressly rather than implicitly and that proved to be the case here.
After reciting the essential facts of the appeal, the Supreme Court observed that had previously addressed the essence of these arguments. It stated that it had held that guarantors are within the group of those protected by N.C.G.S. Section 45-21.36 citing Wachovia Realty Invs. v. Housing, Inc., 292 N.C. 93, (1977) “‘The statute provides only that when the creditor has elected to become the purchaser of the property conveyed by the mortgage or deed of trust at a sale made under a power of sale . . . he shall not recover judgment against his debtor for any deficiency, after the application of the amount of his bid as a payment on the debt, without first accounting to his debtor for the fair value of the property at the time and place of the sale, and that such value shall be determined by the court.’ (quoting Richmond Mortg. & Loan Corp. v. Wachovia Bank & Tr. Co.(Richmond Mortgage), 210 N.C. 29, 185 S.E. 482 (1936), aff’d, 300 U.S. 124, 57 S. Ct. 338, 81 L. Ed. 552 (1937)). The effect is that the section establishes an equitable method of calculating the indebtedness; therefore, it is not a “defense” in the usual sense which can be waived.”
Citing Virginia Trust Co. v. Dunlop, 214 N.C. 196, 198 S.E. 645 (1938), the Supreme Court stated that it had addressed an anti-deficiency statute containing language nearly identical to the present-day section N.C.G.S. Section 45-21.36 and concluding that a guarantor had the right to utilize the statutory protection at trial. The Court determined that its holdings in Dunlop and Richmond Mortgage are controlling, that a guarantor may raise the statutory defense, is entitled to its benefits when it has been determined that the property’s fair value exceeded the purchase price paid by the creditor at the foreclosure sale, had the right to have the court determine the outstanding indebtedness by application of the fair market value of the collateral at the time of sale and that as the guarantors only guaranteed the repayment of the indebtedness which is merely being calculated pursuant to the statute, it is not the type of “defense or offset” which is subject to waiver.
It appears that the Court may have been concerned about the likelihood of creditor attempts to circumvent the doctrine confirmed in this case by the use of artful drafting of waiver language in future guaranty agreements. Such efforts are forestalled where, after a thorough analysis of the history and purpose of the statute the Supreme Court states; “we further conclude that because anti-deficiency legislation is so narrowly tailored to address specific instances of the public’s vulnerability to lender overreach, waiver of this statutory protection as a prerequisite to receipt of a mortgage or as a condition of a guaranty agreement would violate public policy...”
Atlantic Coast Props., Inc. v. Saunders, (365A15) 4/15/2016
Supreme Court sets Proof of Ouster of Tenant in Common
One of the challenges in establishing title by adverse possession is overcoming the hurdle presented with extinguishing the interests of tenants in common. In order to prove adverse possession against cotenants, one must prove exclusive control and ouster for the prescribed period of twenty years, or at a minimum, constructive ouster. This appeal was the culmination of the litigation that resulted when a purchaser of an undivided one-half interest in land brought a special proceeding to partition the property. The respondent cotenants claimed that they had acquired sole title to the property as the result of their ancestor's constructive ouster of all others having an ownership interest in the land. The North Carolina Supreme Court affirmed per curiam the opinion issued by the North Carolina Court of Appeals in its file No. COA14-1278 filed October 6, 2015 determining that constructive ouster had not been proved for summary judgment purposes and remanding the case to the trial court for further proceedings.
Three children inherited their father’s 14-acre tract of land in Currituck County at his death in the early 1920s. One of these children remained on the property, lived there throughout his life and his descendants continued to live on the property. The other two children moved away from North Carolina and eventually their shares in the property passed through the process of family inheritance until only two of the original three families each owned an undivided one-half interest in the property. One being the family that was still living on the property and the other being one of the families living out of state who was the predecessor in title to the petitioner in the original proceeding. According to the factual recitation in the opinion, the two families did not keep in touch, and the out-of-state family never visited the property. The facts were extensively discussed in the majority and dissenting opinions and the record in the case reflected that there was substantial evidence introduced from which a jury could decide that the family living on the land acknowledged the interest of their out-of-state relatives in various ways, “even at one point suggesting that they partition the property to give the out-of-state relatives sole title to their share.” In 2005, the out-of-state family sold their interest in the property to the petitioner.
The respondents are the descendants of the original heir who stayed on the land and as a defense to the partition proceeding they asserted for the first time that they had acquired sole title to the property over 80 years earlier by adverse possession under the theory of constructive ouster. The trial court granted summary judgment in their favor, concluding that the petitioner “failed to forecast sufficient evidence to rebut Respondents’ showing of constructive ouster.” The Court of Appeals did not agree with the trial court’s conclusion and the North Carolina Supreme Court succinctly agreed.
The Court of Appeals majority opinion summarizes the issue succinctly: “If one cotenant has been in ‘sole and undisturbed possession and use of the property for twenty years, without any demand for rents, profits or possession by the cotenants, constructive ouster of the cotenants is presumed.’ Herbert v. Babson, 74 N.C. App. 519, 522, 328 S.E.2d 796, 798 (1985). But if the occupying tenant ‘does anything to recognize title of the cotenants during the twenty-year period, the presumption of ouster does not arise.’” The opinion then discusses the evidence introduced in the case suggesting that as “all of the original heirs to this property are long dead, so no one can testify directly to what was said in the 1920s or 1930s.” This Court observed that “under Supreme Court precedent, a reasonable jury could conclude from this evidence that the family living on the property always recognized their out-of-state relatives’ interests. That is all that is required to defeat summary judgment. Private property rights are the bedrock of liberty in our nation. In a case like this one, where a joint property owner’s rights are threatened through the legal fiction of constructive ouster, without any actual ouster, we must be particularly vigilant in applying the well-settled summary judgment standard and permitting a jury to resolve fact disputes. To hold otherwise would expose well-intentioned property owners across our State to losses from the legal gamesmanship of their cotenants.”
The opinion notes that an appeal from a summary judgment is reviewed de novo and it thoroughly analyzes the facts interposing precedent cited for both admissibility, probity and weight, and ultimately concluding that while there was evidence of exclusive possession, there was also sufficient evidence which “taken together and viewed in the light most favorable to [the petitioner], creates a genuine issue of material fact as to whether [the North Carolina] heirs recognized the ownership interest of the [out of state heirs] thus defeating the presumption of constructive ouster.”
The dissenting opinion expresses the view that as there was no such admissible evidence presented showing such recognition in the first twenty years, that constructive ouster had established the right of possession and the evidence in the case of the more recent actions of the heirs in possession should be disregarded as irrelevant. The opinion makes a compelling argument about the absence of evidence and the great length of the possession. This would have more merit had there been any evidence concerning that period rather than mere inference from an absence of evidence. The majority opinion discourses upon the issue as follows:
Our Supreme Court considered and rejected this precise argument in a nearly identical context, holding that evidence from outside a particular twenty-year period can be used to infer a consistent position within that twenty-year period. See Clary v. Hatton, 152 N.C. 107, 67 S.E. 258, 259 (1910). In Clary, three siblings inherited property from their parents in 1872. Id. The brother lived on the property during his lifetime; his two sisters did not. When the brother died in 1908, his heirs claimed the entire property by adverse possession. Id. Although there was no evidence that the brother recognized his sisters’ interests from 1872 to 1892, the sisters presented evidence that their brother acknowledged their interest in 1900, telling another man that “he only claimed or owned one third of the lot and his sister each owned a third.” Id. The Supreme Court held that the brother’s “declaration in 1900 in acknowledgement and recognition of his sisters’ title is evidence that prior to then he had never claimed adversely to them.” Id. This was sufficient evidence “to go to a jury that the possession of [the brother] was never adverse to the rights of his sisters . . . and that consequently [the brother] acquired no title by reason of his possession.”
It is important to consider that the possession arguments tend to lose traction in the context of family lands where more informal recognition of property rights commonly carry greater weight among family members than they do among strangers. It is to be observed that there apparently never was any ownership issue among family members until a third party acquired the one half interest and partition4d the land. It is also very important to recognize that the Court of Appeals was not willing to terminate property rights simply because one part of the family had moved away...even after 85 years. As the majority asserts:
Finally, there are important policy reasons for following Clary and reversing the entry of summary judgment in this case. As this Court previously has observed, a rule requiring specific, concrete evidence from each twenty-year time period could encourage a cotenant “to deal with his fellow tenants in a less than open and honest manner.” Sheets v. Sheets, 57 N.C. App. 336, 338, 291 S.E.2d 300, 301 (1982). An occupying tenant could repeatedly reassure his cotenants that their interests are secure and then, after the passage of time has removed the records or witnesses, abruptly change position and claim title by constructive ouster occurring decades, or even centuries, ago. Private property rights are the bedrock of liberty. It is one thing to lose property rights to the open and notorious adverse possession of another. But in a case like this one, where a joint property owner’s rights are threatened through the legal fiction of constructive ouster without any actual ouster, courts must be particularly vigilant in applying the well-settled summary judgment standard and permitting a jury to resolve fact disputes about who told what to whom.